BHP (ASX:BHP) is looking to its Canadian potash project to mitigate current and future risks to global fertilizer supplies due to the Russian conflict. The company’s $5.7 billion Jansen potash project in Canada is set to be accelerated with Stage 1 first production being pushed to 2026. This is an acceleration of a full year as the company had planned to begin production at the project in 2027. The war in Ukraine has hit supplies of important grains, as well as fertilizers. This is because Russia and Belarus currently account for 40% of global production, and the instability, as well as actions, have cut off supply.
In the middle of February, Belarusian state-owned potash miner Belaruskali sparked concerns by announcing force majeure on its contracts. This alarmed a market that was already struggling with skyrocketing prices. Since then, further sanctions on Russia have worsened the situation, cutting off supplies.
BHP CEO Mike Henry is now looking to the company’s Canadian project, located in a politically and geographically stable mining jurisdiction. This would reduce the supply-side disruption risks. Henry spoke about this at the Bank of America Metals and Mining conference earlier this week: “[Supply-side disruption linked to the war in Ukraine] has positively reinforced the decision we’ve taken to enter potash. We are making good progress and we’re looking at potential to accelerate Jansen Stage 1 first production into 2026.”
Potash is expected to be produced in Jansen at a rate of about 4.2 million tonnes each year during the first phase. Stage 2 would produce an additional 4 million tonnes every year, for a capital intensity of between $800 and $900 per tonne, nearly 30% lower than the planned costs for Stage 1.
Now, the company has begun studies for a second phase of the project’s development, which could advance things faster. With the $5.7 billion investment, BHP had given roughly $1.4 billion in contracts as of late April and an additional $200 million since the firm released first-half results in February, which cover port infrastructure, underground mining systems, and other shaft and surface construction projects.
“If we decide to bring on all four stages, and at prices just half of where they are today, we’d be generating around $4 billion to $5 billion of EBITDA [earnings before interest, depreciation, tax and amortisation] per year,” Henry said at the conference.
Potash shortages are a concern not just for the mining industry but for agricultural industries. Potash is valuable to farmers because it can be used as fertilizer. Fertilizers boost crop yields, which is important for food security. The current situation with Russian supplies has led to higher prices and could create food shortages.
BHP’s move to accelerate its Jansen project is a response to this potential crisis. By increasing production, the company can help to offset any potential disruptions in supply and ensure that farmers have access to the potash they need. With the potential to produce 17 million tonnes per year with the four phases of development, the single Canadian project would account for approximately 25% of the global demand for potash.
Current supply chain issues could take three years to resolve due to the current situation, and the company is moving quickly to shore up its projects and resources for the future.
As the war in Ukraine continues, and sanctions against Russian business continue to expand, mining companies have been exiting businesses in the country. Rio Tinto (ASX:RIO), BHP (NYSE:BHP), and more have been selling assets in Russia as they mak their exit.
Canada’s Kinross Gold (NYSE:KGC) is the latest company to dump holdings there, selling the Kupol and Dvoinnoye operating mines; exploration assets, including the Chulbatkan project; and related infrastructure to Highland Gold Mining and other associates in a $680 million cash deal. Under the agreement, Kinross will receive $400 million in cash for the Kupol mine and surrounding exploration rights.
When the transaction closes, Kinross will receive $100 million, with another $150 million to be paid out before the end of 2023, an additional $100 million before the end of 2024, and a final payment of $50 million before the end of 2025.
Highland Gold CEO Vladislav Sviblov commented in a press release: “Our largest mining hubs are located in the Khabarovsk and Chukotka regions, precisely where these mines are located, and we, therefore, anticipate operational, logistical and management synergies. We also intend to maintain the high operating standards of the previous owner, and to invest in employee development.”
Deals in the country are tightly linked with government approval and oversight considering the stakes, and the Russian Federation Ministry of Industry and Trade, Denis Manturov, commented: “Kinross Gold followed the second of the three options proposed by the government for foreign investors with choosing a civilised way out of Russian projects. Therefore, we support the execution of such a deal: the result will be a stable flow of tax revenues, save of working places and support for social projects in the regions of presence.”
For mining companies with assets in Russia, the path out of the country has been swift. The largest mining companies in the world have all pulled out or are in the process of selling assets, and while the reasons behind it vary, sanctions and political risk are the primary drivers.
Kinross Gold is the latest company to sell its Russian assets, with the sale totaling $680 million, and many other companies are in discussions to exit their businesses in the country.
The European Union has likewise stated that in response to Russia’s invasion of Ukraine, the European Commission will impose a ban on Russian coal and other items. A potential EU ban on Russian coal import, according to a Reuters source, would be worth around €4bn per year.
BHP’s (NYSE:BHP) copper operation, Spence, located in northern Chile, has begun its journey to autonomy by inaugurating its first drilling rig. This event marks the beginning of the implementation of many other projects that seek autonomy and safer, more competitive and sustainable mining practices.
The equipment used is the Pit Viper 351 model, which is operated remotely from the Spence control room located approximately 2 kilometres from the mine pit. The use of this equipment will significantly reduce the exposure to operational health and safety risks of the workforce, which is a strategy that will continue to be implemented throughout the current year.
Five autonomous drilling rigs will be commissioned gradually over time. The plan is that in the future 100% of the drilling fleet will be autonomous. Similarly, it is planned that during 2022 the operation will make a strong decision regarding the autonomy of its truck fleet.
Regarding the implementation of these changes Pedro Hidalgo, the head of Autonomy at BHP Minerals Americas said, “Spence’s first autonomous drilling rig is the spearhead of a broader program that we are implementing at BHP’s main operations in Chile. We are not only working on drills but also on autonomous trucks. We are very pleased to meet this first milestone that will allow us to advance in the Autonomy Program at both Spence and Escondida”.
The active participation of Spence workers has been fundamental for the development of the project. From the study stage, which began two years ago, to date.
For the project, Spence opened 16 new job categories such as autonomous drill controllers and autonomous drill yard operators. The selected employees underwent an arduous training and special training with a duration of approximately 200 hours divided into practical and theoretical learning.
BHP built a US$2.46 billion concentrator plant for the Spence project last year, capable of generating 95,000 tons of material per day. The plant is expected to extend the life of the Spence mine by producing 300,000 tons per year until at least 2026. Spence’s first copper sales are expected to take place in the first quarter of the year.
Due to drops in copper output from state-owned Codelco and BHP’s Escondida mine, Chile saw its total copper production drop in November by 0.6% year-on-year down to 481,800 tonnes, according to the Chilean Copper Commission (Cochilco) report published on Tuesday.
When compared to the previous year during the same period, Codelco experienced an output drop of 7.4% in November, decreasing to 153,800 tonnes. This was a total 0.4% drop in production in 2021 so far for the copper company. Codelco is approaching its 50th year since it was created in 1976, and mainly focuses on the exploration, development, and refining process of copper.
The world’s largest copper mine, BHP’s Escondida, also experienced an output drop in November. Extraction fell 11.6% compared to last year, totaling 80,300 tonnes for the month. In 2021 through November, the mine recorded a 14.5% drop in output.
BHP’s Escondida is the world’s biggest producer of copper concentrates and cathodes. The copper deposit is located in the Atacama Desert in Northern Chile, 170km southeast of Antofagasta. The name ‘Escondida’ actually means ‘hidden’ in Spanish because it is hidden by hundreds of meters of overburden. Oppositely, the Collahuasi copper mine, which is a joint venture by Glencore and Anglo American, reported a 5.1% year-on-year rise in production to 50,700 tonnes, according to Cochilco.
The biggest recent change for Chile was the election of a new president, Gabriel Boric. Many in the mining and copper industry have concerns regarding new rules and regulations surrounding the mining sector that Boric has already begun to discuss.
Boric has already pledged to oppose the $2.5 billion iron-copper mine known as the Dominga mine, after years of legal battles back and forth. He is passionate about the environment and believes the high pollution that would come from this mine would not be worth what it could produce and create.
Boric, who is 35, will be the youngest leader in the history of Chile since President Salvador Allende, and plans to make a plethora of changes to the nation, including drafting a new constitution. The 2022 year will be a time of change and adaptation for the entire mining industry under his new environmentally focused changes and rules. While Boric will be aiming for an environmentally friendly and ESG mining environment, there may be compromises to be found yet, as slowing down an industry that is so critical to the Chilean economy would not be feasible without serious consequences.
Chile is the world’s largest copper producer, from January until August 2021, Chile’s copper production totaled 3.73 million metric tons. In 2020, Chile’s copper production was about 5.7 metric tons, accounting for approximately 28.5 % of the global copper production that year.
According to trading economics models, Chilean copper production is projected to trend around 540.00 thousands of tonnes in 2023.
Not only is Chile the world’s largest copper producer, but they also have some of the biggest lithium reserves in the world. Boric in the past has criticized privatization in the mining sector and would like to see the state have its own lithium firm, but has not touched on these plans again since pledging to create one.
As the global pandemic and supply and demand continue to change and update, and Boric takes his place as president in March, Chile can expect to see lots of changes in the upcoming 2022 year.
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|Lincoln Minerals Limited